How to Sell a Restaurant Fast

As with most businesses, price is a prime factor in selling a restaurant fast. However, restaurants can sell for their asset value alone, such as furniture, fixtures and equipment (FF&E) along with their permits and licenses.  Knowing how to value those assets is the key to selling a restaurant quickly. Price is not the only [...]

As with most businesses, price is a prime factor in selling a restaurant fast. However, restaurants can sell for their asset value alone, such as furniture, fixtures and equipment (FF&E) along with their permits and licenses.  Knowing how to value those assets is the key to selling a restaurant quickly.

Price is not the only determining factor in procuring a quick sale.  You need to get into the “buyer mindset” and make sure a buyer sees the same value in your restaurant as you do.  Here are some no nonsense step to getting your restaurant sold fast:

1.       Price – Price – Price!!!

Just like anything else…   the better the deal, the faster someone will snatch it up.  Some factors that go into determining the price are location, FF&E replacement values, permits and licenses.

2.       Make it easy to understand -

If you want to sell your restaurant above and beyond the asset value, make sure your books and records are in order.  If someone can’t understand your books and records, they generally aren’t going to pay much for your restaurant.

  • Put together a list of inventory and other assets such as furniture, fixtures and equipment (FF&E) and list their replacement costs.
  • Make sure you have straight forward profit and loss statements for the last three years
  • Find a way to prove cash sales (start keeping a handwritten record on the side, if necessary)
  • List out your cost of goods sold (COGS)and monthly food waste costs, if possible
  • Have any employment contracts organized and ready for review
  • List out any debt that will need to be dealt with in the sale

3.       Write up your story-

How and why you opened this restaurant, what are the opportunities and the obstacles and why you are selling.  Also, list how you advertise to customers.  Quote some reviews, etc.

4.       Clean it up- 

Make sure chairs, tables and décor are in good shape. The kitchen and bathrooms should be spotless and free of clutter and all equipment should be operational.  Your staff should be friendly & knowledgeable and the general environment should be pleasant to customers.   Also note that messy inventories tend to scare away buyers.

5.       Review your lease- (unless you are selling property with the business)

Make note of your expiration date, what extension option you have and any transfer clauses.  A buyer will either assume your current lease or negotiate a new one depending on the factors within your lease agreement.

6.       Get a restaurant broker-

A good restaurant broker will help you get organized and help you determine the best price to expedite the sale.  They will also advertise on the plethora of websites (I, for instance, advertise on at least 100 local, national and international sites dedicated to selling restaurants and businesses).  A good restaurant broker will also discreetly market to people within the restaurant industry, help you negotiate the best deal and, most importantly, make sure the deal closes.

There is a lot that goes into selling a restaurant, much more than many other types of business.  A restaurant needs be positioned for sale to get it in front of the right buyers. We currently have over 3,000 buyers in our database alone. For a free consultation, please don’t hesitate to call Restaurant Broker, Shelli Margolin-Mayer at (310) 882-2200 ext. 128.  http://www.bizex.net/business-broker/shelli-margolin

Selling a Failing Restaurant

On November 21, 2011, in Business Sales Process, How to Sell, Industry, News, Restaurants, by Shelli Margolin

By Shelli Margolin, Restaurant Business Broker In the current economy, many restaurants that once thrived are sadly no longer able to sustain a positive cash flow. However, the good news is that selling a restaurant that is operating under a loss or poor revenues is possible. The biggest barrier to entry in the restaurant industry [...]

By Shelli Margolin, Restaurant Business Broker

In the current economy, many restaurants that once thrived are sadly no longer able to sustain a positive cash flow. However, the good news is that selling a restaurant that is operating under a loss or poor revenues is possible.

The biggest barrier to entry in the restaurant industry is the initial build-out costs.  If your restaurant has a functioning hood, flood drains, three part sink and a permitted refrigerator unit, then your restaurant will sell.  If you have a liquor license, your restaurant will sell for more!

The most common obstacles to selling your restaurant are:

1.      The price you want vs. the actual market price

2.      Messy, incomplete or none existent books and records

3.      Deferred maintenance

4.      Not being up to code

5.      Expiring lease

6.      Time and energy

Preparation is the best way to overcome these obstacles:

1.      Be prepared to carry a note, instead on insisting for all cash. If you price your restaurant too high or too low, you won’t get serious responses.  Tailor your expectations to the reality of the market.

2.      Your books and records can be your best friend in selling your restaurant.  They will highlight such things as Discretionary Earning which can actual cause your business to show a positive cash flow for a new buyer.  Any non-operational expense, such as your car payments or cell phone can be added back to your bottom line.

Your books and records can also be your enemy, if they are not kept organized and up to date.  Additionally, many businesses are opting to take cash instead of credit cards.  It is very typical that cash transactions aren’t recorded.  However when selling your restaurant, it is to your advantage to show all your revenue in order to receive a higher selling price.  Keeping a simple hand written or spreadsheet record of cash sales can often be sufficient documentation for a buyer, …but only if those cash sales are real.

3.      Make sure all your major equipment and floor drains are in working order and are up to code.  Otherwise be prepared for a price that will reflect getting those items working and up to code.

4.      A new buyer will need to go through a County health inspection.  If your restaurant isn’t up to code, it will not sell!

5.      Location! Location! Location!  If your lease is expiring this year, you may want to think about getting an extension or exercise your option to make your restaurant more attractive to serious buyers.

6.      If you are planning on trying to sell your restaurant by yourself, be prepared to spend a lot of time and energy on the marketing, looky-loo’s and a barrage of questions from would-be buyers.  Selling a restaurant is a full-time job and proper marketing can get expensive to successfully sell it yourself.

The decision to sell is as much an emotional decision as a business one.  Get some help by enlisting an experienced business broker.  They can help you overcome most obstacles and discreetly bring you qualified buyers, so you can your spend your time and money running your restaurant and living your life.

Enlist an experienced business broker.   They can help you overcome most obstacles and discreetly bring you qualified buyers.  We currently have over 3,000 buyers in our database alone.  For a free consultation, please don’t hesitate to call me.  Shelli Margolin-Mayer, Business Broker: (310) 882-2200 ext. 128.  I’m happy to help.

 

By Shelli Margolin | BizEx Business Broker Profile | 310-882-2200 Ext 128

How to Value a Restaurant or Bar that is not Showing Profit

How much money is a restaurant worth? Does it have any value if the restaurant is not turning a profit or barely breaking even? Restaurants, coffee shops or bars are valuable even if they are not showing a profit. These kinds of businesses are valued through the replacement value technique which assumes a buyer pays [...]

How much money is a restaurant worth? Does it have any value if the restaurant is not turning a profit or barely breaking even?

Restaurants, coffee shops or bars are valuable even if they are not showing a profit. These kinds of businesses are valued through the replacement value technique which assumes a buyer pays the seller a price that is not dependent on the income value to benefit from the existing investment in the restaurant facility, the lease and the location. In other words, the buyer is starting a restaurant business at a discount and will pay for the right to avoid spending hundreds of thousands or even millions and avoid all the delays and city regulations in building a new restaurant

Here is what a restaurant –seller has to say when he received an offer on his business.
“…they see that the only valuable asset of a restaurant is the equipment such as freezer, refrigerator, oven, ice maker and the espresso machine. Sure this equipment can easily be bought at discounted price from restaurant equipment liquidators. I bought some of them myself.
But to open this restaurant, I spent more than the cost of these machines. I paid an architect to draw the layout so this will pass the permit requirement. I had to present these plans to the city’s planning committee for their approval and that was not a stroll in the park. And then the contractor, oh boy… Our target was 3 months. It took us 9 months to finish building this 1000sf restaurant! My landlord gave me 2 months TI (tenant improvement) period but after that I had to pay rent month after month until the construction was completed. I had a great location in Santa Monica but it sure was not cheap, $250,000. I won’t get into the details but it is hard to put a value on the time, sweat, and near-breakdowns I put into this business… And then I get an offer for $10,000 because the buyer thinks my used equipment is only worth that much. I know I won’t get back the money I invested but come on.”
****
When valuing a Restaurant using the replacement value technique, you  need to take into consideration the costs of the following Assets:
- Tenant Improvements (electrical rewiring, plumbing, heating and air conditioning. cosmetic changes, build outs)
- Fixtures (hood system/ventilation, grease trap, walk-ins, shelving units, lighting)
- Permits and licenses (health permit, ABC license, entertainment permit, extended hours to operate)
- Location, location, location (Is this even replaceable?)
- Lease
- Goodwill
- Equipments
- Furniture
- Clientele/Database
- **Alcohol license (ABC License Type 41, Type 47 or Type 48)

Mina Singson is an experienced Restaurant/Bar Broker.  She has listed and sold different types of restaurant businesses. For  a free consultation, please contact Mina Singson at 310-882-2200 ext. 125 or email: msingson@bizex.net

How to Sell a Restaurant in 90 Days

How to Sell a Restaurant in 90 Days A True Story   Restaurants are not necessarily an easy sell.  However, if they are priced at their proper value and positioned to sell in the right forums, they can be sold in a timely manner to the satisfaction of both the buyer and seller. Preparing the [...]

How to Sell a Restaurant in 90 Days

A True Story

 

Restaurants are not necessarily an easy sell.  However, if they are priced at their proper value and positioned to sell in the right forums, they can be sold in a timely manner to the satisfaction of both the buyer and seller. Preparing the restaurant’s books and records for sale is as important as bringing in the right buyer. The following is a true story of a restaurant that recently sold through an experienced restaurant business broker.

When the Johnston’s[1] bought their pizza deli in Los Angeles five years ago, the plan was to build a business for their children to takeover.  Both Mr. & Mrs. Johnston had fulltime careers that they wanted to keep.  With the help of their son, the restaurant was able to sustain a positive cash-flow for several years.

However, both of their children started pursuing college educations in an unrelated field. Thus, the Johnston’s dream of passing the business on to their children vanished.  Mr. Johnston began spending more and more time running the restaurant while his son was in school.  Working at a full-time career and working in the restaurant soon became extremely stressful.

The stress and loss of motivation, along with a family illness, spurred the Johnstons to sell.  At the listing meeting, two pertinent questions were asked, 1) is your hood, floor drains and refrigeration exhaust in working order with valid permits and 2) what are your gross sales & net sales? These are the two most import issues regarding readiness for sale and determining price.

All the equipment and permits where in order. Thus, replacement costs were determined for the furniture, fixtures and equipment (FF&E).

Unfortunately, they didn’t have organized books and records.  Plus, a fair amount of sales where in unrecorded cash.  Once they reviewed the documentation they had and came up with annual totals for sales and expenditures, a legitimate profit and loss statement was created that a buyer could understand.

Because they hired staff to work the hours the family couldn’t, their net profits were negatively affected. The profit and loss statement was then adjusted to show what the restaurant would earn if the restaurant was owner-operated.

There was still the problem of the cash revenue. Some of the cash was pocketed as profit and some was used to pay employees and for inventory purchases.  It was expressly explained that onus was on the seller to prove the cash sales to a buyer.

Once there was a legitimate the profit and loss statement and the FF&E replacement cost was established, an asking price was determined based upon a multiple for restaurants selling in Los Angeles.

Twenty-one days after the listing was launched, an acceptable offer was presented.  The buyer was not exactly a good match, as he was looking for an investment and not a hands-on owner-operated restaurant.  However, the buyer was enthusiastic and he wanted to pursue the sale.  The Johnstons agreed. During the due-diligence period, the buyer wasn’t convinced of the cash sales. He made a formal request and was released from the offer.

Within two weeks another acceptable offer was presented.  This time the buyers were a family, the Garcias[2], who wanted to run the restaurant as onsite owner-operators.  They understood the concept of cash sales, however they needed proof.  Thus, the Garcias spent more time with the Johnstons during the due-diligence period.  Through an on-site visit, they gained confidence in some of the cash amounts that were stated.  However, it was not enough to justify the full asking price.  Together a price was negotiated with which everyone was comfortable.  The deal closed within 90 days from the time the listing was launched.

If a restaurant is marketed to the correct audience and can prove its net income, the right buyer is out there.  There is a lot that goes into selling a restaurant, much more than many other types of businesses.  The above story is just one example of restaurants I’ve sold. We currently have over 3,000 buyers in our database alone.  For a free consultation, please don’t hesitate to call me. Shelli Margolin-Mayer, Restaurant Broker: (310) 882-2200 ext. 128.  http://www.bizex.net/business-broker/shelli-margolin I’m happy to help.

 

 


[1] The real names have been changed to protect privacy.

[2] The real names have been changed to protect privacy.

By Shelli Margolin | BizEx Business Broker Profile | 310-882-2200 Ext 128

Preparing a Restaurant for Sale

On August 8, 2011, in Business Sales Process, Business Valuation, How to Sell, Restaurants, by Shelli Margolin

If you are considering selling your restaurant, preparation is essential in order to make the sale easier, faster and more profitable. Buyers will usually estimate the value of a restaurant beyond a wonderful menu and steady clientele.   Their assessment will determine what they are willing to pay.    Having all aspects of your restaurant in order [...]

If you are considering selling your restaurant, preparation is essential in order to make the sale easier, faster and more profitable. Buyers will usually estimate the value of a restaurant beyond a wonderful menu and steady clientele.   Their assessment will determine what they are willing to pay.    Having all aspects of your restaurant in order is the key to a successful sale.

Many of the steps below may seem like no brainers.  However, often restaurant owners are so engrossed in their day to day operation that they over look simple things that can drastically effect how buyers will perceive their restaurant.

It is crucial to look at your restaurant through the eyes of a buyer and ask yourself some key questions:

  • Are your books & records organized?
    • Can a buyer clearly understand how much profit you make?
      • Is your profit provable on paper?
      • Do you have cash sales?  Can you easily prove those sales to a buyer?
      • Can you show on paper what your costs are (food, labor, waste, etc)?
  • When the restaurant is closed to the public, what does it look like?
    • Is it clean?
    • Are the chairs, tables and décor in good shape?
    • Is the kitchen spotless and free of clutter?
    • Are the bathrooms spotless?
    • Is all your equipment operational?
  • When the restaurant is open, how well does it function?
    • Is your staff friendly & knowledgeable?
    • Is the environment pleasant to customers?
  • Are all your permits and licenses valid?
    • Is the restaurant in compliance with the County of Los Angeles’ new food handler’s regulations?
    • Do you have any outstanding violations?

If you answered no or wavered on any of these questions, then you need to take corrective measures before you place your business on the market.  In order to sell your restaurant for the best price, all of the aforementioned elements need to be in place.

Coherent financial data is vital.  There are ways to mitigate messy books and records.  However, if buyers can’t determine your revenue, costs and profit, then selling your restaurant becomes extremely difficult and you most certainly won’t get the price you want.

Buyers will want to tour the restaurant when guests and staff aren’t around in order to ask questions and assess the furniture, fixtures and equipment (FF&E).   You’ll want to take whatever steps are feasible to make the restaurant as presentable as possible.   Buyers need to have a positive emotional response on first sight. The cleanliness of a restaurant affects the overall desirability and thus the ultimate price.

While you are cleaning, take a second look at your staff and overall operations.  Buyers will be scrutinizing how your restaurant runs.  If they are sophisticated buyers, they will not only come in to get the costumer experience, they will send others to check out the service and environment too.

During due diligence, the potential buyer will want to see your permits and licenses.  You’ll want to make sure they are all valid and any violations are corrected well before the due diligence period.  If they aren’t in order, your risk losing the sale.

There is a lot that goes into selling a restaurant, much more than many other types of business.  For a free consultation, please don’t hesitate to call Restaurant Broker, Shelli Margolin at (310) 882-2200 ext. 128.  I’m happy to help.

 

 

By Shelli Margolin | BizEx Business Broker Profile | 310-882-2200 Ext 128

What Is a Typical Restaurant Business Worth?

As written for ehow.com… What Is a Typical Restaurant Business Worth? The worth of a restaurant is predicated on what someone will pay to buy that restaurant. As restaurants come in as many shapes and sizes as do their owners, determining worth is complex. In the most general terms, value can be established through either [...]

As written for ehow.com

What Is a Typical Restaurant Business Worth?

The worth of a restaurant is predicated on what someone will pay to buy that restaurant. As restaurants come in as many shapes and sizes as do their owners, determining worth is complex. In the most general terms, value can be established through either a multiple of annual sales or by its assets.

Restaurant Categories

Restaurants fall into two major categories: full-service and limited-service (or quick service). Then there are many subcategories such as, fine dining, casual dining, dinner house, bar & grill, deli’s, fast food, pizza take-out and the list goes on. Within those categories are independently owned, franchises, corporate owned, single location to international multi-location. Thus, “typical restaurant” cannot be rationally defined.

Profit vs. Assets

Let’s look at individually owned and operated restaurants. In the most simplistic terms… there are two ways in which a restaurant can be valued, whether they are full-service or limited-service. The first is by a multiplier of annual profits for successful operations. For a restaurant that is not making a profit, its worth is determined by its fixed assets, known as Furniture, Fixtures and Equipment (FF&E) or an asset sale. Whether or not a restaurant is making a profit, the fact is that the market is going to be the ultimate determination of what any restaurant is worth.

Multiplier for Restaurants Earning a Profit

Prior to the current recession, profitable restaurants were valued at two to three times their annual profits (or Discretionary Earnings) plus inventory. However, currently in the Los Angeles area, it appears that profitable restaurants are generally worth a 1.5 to 2 multiple of Discretionary Earnings plus inventory. The more successful the restaurant is at making a profit for the current owner, the more valuable it is for a buyer. This is typical for any business.

No Profit, No Problem

If a restaurant is not turning a profit, there still is value to a buyer. The biggest barrier to entry in the restaurant industry is the initial build-out costs. If a restaurant has a permitted and functioning hood, flood drains, three-part sink and a permitted refrigerator unit, and it’s in a good location, then the restaurant will generally sell. If it has a liquor license, the restaurant will sell for more! This is true also for a profitable restaurant also.

At Cost Equipment Value

The value or worth of a restaurant that is not making much of a profit is in its working-permitted equipment and other assets. The owner must determine the at cost value of each piece of functioning equipment and other asset. Then put it all together in a list to ascertain the current worth of the restaurant.

Enlist a Professional

Whether trying to determine the worth of your own restaurant for financing purposes or to put it on the market to sell, your opinion of value will most likely be tainted by emotions and the price you want vs. the actual market worth.  For financing intentions, talk to a commercial lender before you start the loan process.  When contemplating selling your restaurant, enlist an experienced business broker. They can help you determine market value and discreetly bring you qualified buyers, so you can your spend your time and money running your restaurant and living your life.

 

By Shelli Margolin | BizEx Business Broker Profile | 310-882-2200 Ext 128

How to Appraise a Restaurant Business

As written for ehow.com… There are several reasons for appraising a restaurant, along with many nuances to the appraisal itself. Let’s review how a prospective buyer can appraise a restaurant for purchase. There are three general ways that restaurants’ sale prices are established: based on profits, assets, or “key costs,” referring to its location value. [...]

As written for ehow.com…

There are several reasons for appraising a restaurant, along with many nuances to the appraisal itself. Let’s review how a prospective buyer can appraise a restaurant for purchase. There are three general ways that restaurants’ sale prices are established: based on profits, assets, or “key costs,” referring to its location value. The buyer should be aware of whether the restaurant is making a profit and what furniture, fixtures and equipment (FF&E) are included in the sale. If a restaurant is profitable, a buyer can take a financial approach to the appraisal. If the restaurant is not turning a profit, it still has value in its equipment. In some cases, a restaurant is sold for key costs: its location, property/lease value and entitlements.

Instructions:

Profitable Restaurants

1 Review all the financial data available. This includes a minimum of the past three years’ tax returns, profit and loss statements, and any additional records of cash sales (cash sales often are not reported on tax returns or elsewhere). Note that cost of goods sold (COG) is usually around 20 to 40 percent of revenues depending on the type of restaurant.

2 Obtain a list of all FF&E that will be included in the sale price. Although the sale will be predicated on the annual profits, the restaurant can’t operate without equipment that has the required permits.

3 Review the entire lease thoroughly before signing it. Understand the monthly rate and any common area maintenance (CAM) fees, along with any other charges and fees. Also, review the term and option to extend.

4 Use a multiplier of the annual profits to determine the restaurant’s value. In a good economy, the rule of thumb for profitable restaurant value is two to three times the restaurant’s annual profits (or discretionary earnings) plus inventory. In a bad economy, it is more likely a 1.5 to 2 multiple of discretionary earnings plus inventory.

Unprofitable Restaurants

 

1 Examine the hood, floor drains, three-part sink and permitted refrigerator units to make sure they are functioning. The restaurant industry is probably one of the few industries where you can sell a business that isn’t making a profit, as the biggest barrier to entry is the initial build-out cost. A restaurant will sell for its permitted and functioning equipment or sometimes for its location and entitlement to operate at that location.

2 Determine what, if any, FF&E are included in the sale, as the restaurant build-out and obtaining the permits for equipment is expensive. Appraise the hood, floor drains, three-part sink and permitted refrigerator units. Ranges, ovens and other equipment are valuable, too, but they are easier to replace without requiring permits. The FF&E should be appraised upon replacement costs in order to determine the value. Don’t overlook the employees; they are often an important asset to consider too. Get a good understanding of their salary and benefit structure

3 Make a thorough review of the lease or the real estate purchase agreement. Make sure the zoning and alcoholic beverage licenses are all in order, before you sign any binding agreements.

Tips & Warnings

It is always a good idea to enlist the aid of a professional. An experienced business broker will provide well-rounded guidance in the appraisal and purchase process. A buyer can engage attorneys and accountants, but a business broker is much more cost-effective. Also, consult your local Small Business Development Center (SBDC). SBDCs are funded by the U.S. Small Business Administration and offer free and low-cost business assistance.

References

  • “CNNMoney”: What’s My Restaurant Worth?; Ingrid Tharasook; December 2007
  • Quantified Marketing Group: Restaurant Financial Analysis
  • The Appraisal Foundation
  • QSR: Valuing Your Store
By Shelli Margolin | BizEx Business Broker Profile | 310-882-2200 Ext 128